Merced Small Business Workshop

Introduction to CalSavers June 10, 2019

Jonathan Herrera, Outreach ManagerCalifornia Secure Choice Retirement Savings Investment Board

The Problem

• Nearly ½ of Californians are projected to retire into economic

hardship -- at or below 2x federal poverty level (UC Berkeley)

• Access Gap: 7.5 million Californians lack a workplace

retirement plan (AARP)

• 2/3 work for small businesses <100 employees

• 2/3 are people of color

• 58% are women

See appendix for detailed profile of eligible population

2

Workers with a payroll deduction savings option are

15 times more likely

to be on a path to retirement security.

3

A Solution: Automatic Payroll Deduction Savings

And 20 times more likely

when it’s automatic enrollment. (AARP)

4

1) Employer Requirement: All CA employers with 5 or more employees must either: • Offer a retirement plan of employers’ choice

Or• Facilitate access to CalSavers for employees

2) Automatic Enrollment for Employees:

CalSavers is completely voluntary for employees, but if they don’t opt-out within 30 days of notification, they will be automatically enrolled.

Two Most Powerful Features of SB 1234

5

Timeline for Implementation

Size of Employer Deadline

>100 Employees June 30, 2020

>50 Employees June 30, 2021

5+ Employees June 30, 2022

• Pilot Program: November 2018 through June 30, 2019

• Program Open Fully Statewide (all eligible employers welcome): July 1, 2019

• Deadlines for Employers to Register:

6

Qualified pension plans

401(k) plans

403(a) plans

403(b) plans

Simplified Employee Pension (SEP) Plans

Savings Incentive Match Plan For Employees (SIMPLE) Plans

Payroll deduction IRAs with automatic enrollment

Qualifying Retirement Plans

Barriers for Small Business/Non-profits

3 hurdles preventing small employers from offering a plan:

• Cost

• Administrative burden

• Fiduciary liability

CalSavers will address all 3:

• No fees for Employers

• Easy to facilitate

• Employers are not fiduciaries

7

8

Simple, portable, low-fee way for workers to save and grow their own money.

• Automatic payroll deduction IRA (Individual Retirement Account)

• Completely Voluntary for employees; savers may opt-out at any time

• Simple option: automatic enrollment at work, automatic escalation of contributions, default investment options to make saving easy and automatic

• Portable from job to job

• Gig Workers, self-employed, and other individuals welcome, too

• Zero cost to State, taxpayers: Program is self-sustaining with participant fees

• Professionally Managed & Advised by Ascensus (administrator), State Street Global Advisors and Newton (investments), AKF Consulting, Meketa Investment Group, and K&L Gates

• Transparently Governed by a public board chaired by State Treasurer

What is CalSavers?

9

Employer Role

Minimal requirements:

• Register business, designate payroll company if any (Less Than 10 Minutes)

• Upload employee information (Simple Templates Available)

• Facilitate automatic contributions from participating employees (One Transfer)

Employers Do Not:

• Make an employer contribution

• Answer questions about program/participation – refer to program

• Make changes to employee accounts/settings – refer to program

• Provide investment advice

• Encourage or discourage participation

10

Employers With <5 Employees

Employers with less than five employees are not subject to the mandate, may not

participate in automatic enrollment of their employees, and are not required to

register for CalSavers.

Individual saver participation is welcome in the program starting fall 2019

• Individuals can open an account on their own directly on the website

• Individual participants may ask their employer to facilitate their payroll

contribution, but the employer is not required to do so

11

Employee Eligibility:

• All W-2 employees with CA wages, subject to CA Unemployment Insurance are

eligible and must be added to roster – regardless of hours worked

• 18 years of age or older

• Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)

required

Individual Eligibility (self-employed, “gig”, or employees of non-mandated

employers):

• 18 years of age or older

• Earned income

• SSN or ITIN required

Saver Eligibility

12

• Default Contribution Rate: 5%, with 1% automatic escalation to 8%

(participant may change rates at any time)

• IRA Type: Default is Roth IRA (allows for penalty-free & tax-free withdrawals of

contributions); Traditional IRA as an elective option

• Investments: 5 Options, default for 1st $1,000 into Money Market with

subsequent contributions defaulting into Target Date Fund (asset allocation

based on age and automatically adjusts over time)

• Fees: Most aggressively declining fees among peers; at scale will be among

lowest in industry (see detail in appendix)

• Accessibility: mobile app, superb customer service call center, multi-lingual

CalSavers Features

13

• Strict Privacy Policy: The program will not share personal information with

employers or any government or private entities (unless required by law).

• Overseen by a Transparent Public Board

• Chaired by State Treasurer

• All decisions made in meetings that are open to the public

• Public comment welcome

• Fiduciary Role: The board, staff, and relevant contractors are fiduciaries and

make decisions in the best interest of participants

Consumer Protections

14

$15/hr CA minimum wage by 2023; some cities sooner LA

(7/1/21) and SF (7/1/18)

Expected Impact

CalSavers + CA’s new min. wage =

50% increase to young low-income workers’

retirement incomes

(UC Berkeley Labor Center)

15

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

25 30 35 40 45 50 55 60 65

THE POWER OF COMPOUND INTEREST: SCENARIOTotal Estimated

Account Value:

$349,464

Total Interest Earned:

$230,376

Total Contributions: $119,089

Scenario assumptions: starting salary of $30,000 with 1% salary increase per year; hypothetical rate of return is 5%.

Investment returns may vary, are not guaranteed, and assets may lose value.

Default Contribution Rate:

5% escalating 1%/year to

8% in Year 4

Pilot Program Feedback

16

“I'm a businessman. I'm

very leery of government

[mandates]. But wow, I'm

very impressed with

CalSavers…This will allow

us to attract employees

better, and we can better

retain them with a

retirement [program].” –

Lorenzo Harris, Janico

Building Services

“What I love about

CalSavers is that it is

very low impact for me

as an employer, but the

potential impact for my

employees is huge…

This tries to address a

culture of saving. I have

employees who are quite

excited about this

possibility.” – Christin

Evans, The Booksmith

Next Steps

17

• If you qualify, join after July 1 – preregister starting June 1

• Likely that members’ family and friends will be affected

• Opportunity to help CalSavers raise awareness through:

existing communications channels and word of mouth

special events/workshops where CalSavers or partner staff

provide content/speakers

www.calsavers.com

Sign up to receive updates: www.treasurer.ca.gov/scib

Follow us on Twitter: @CalSavers

Jonathan Herrera, Outreach Manager

jherrera@treasurer.ca.gov

19

2008: Sen. de Leon began exploring solutions to retirement crisis

2012: Passage of Senate Bill 1234 (de Leon)

2013: Board established, began raising funds for Feasibility Study

2016: Feasibility Study completed

September 2016: Gov. Brown signs SB 1234 into law

April 2017: First Executive Director appointed by Treasurer Chiang

August 2018: Board approves contracts for Ascensus and State Street

November 2018: Regulations approved, pilot program open, first pilot employers and employees enrolled

January 3, 2019: First contributions made via payroll deduction

Full History: https://www.treasurer.ca.gov/scib/history.asp

Brief History of CalSavers

20

CalSavers Fees

The total fee for CalSavers is based on two underlying fees:1) Program administration fee

o Covers cost of managing the day-to-day operations of the program, repays startup loano This fee will automatically go down as the program grows.

2) Investment management feeo Cover the cost of managing the investments. o Ranges from 0.025% to 0.15% depending on investment option

Total Fee at Program Launch (Admin + Investments)=

0.825% – 0.95% depending on investment selection~or~

82.5¢ – 95¢ for every $100 per year

Profile of Eligible Population: Work

• What is their average income?

o $35,146

• Where do they work?

o 13.3% Retail

o 12.3% Accommodation and Food Service

o 11.0% Manufacturing

o 11.0% Health Care and Social Services

o Other top fields: Management/Administration/Support Waste Management

Services; Wholesale, Transportation & Warehousing; Construction

21

Source: CA Secure Choice Market Analysis and Feasibility Study By Overture Financial LLC, March 17, 2016

Profile of Eligible Population: Race

34% White

4% Black

14% Asian

46% Latino

2% Other

22

Race/Ethnicity of Eligible Workers, 2012-2014

Source: CA Secure Choice Market Analysis and Feasibility Study By Overture Financial LLC, March 17, 2016

Profile of Eligible Population: Age59% of the eligible population is under 40

0%

5%

10%

15%

20%

25%

30%

35%

18-29: 30-44: 45-54 55-64

35%34%

19%

12%

Age Profile of Eligible Workers, 2012-2014

23

Source: CA Secure Choice Market Analysis and Feasibility Study By Overture Financial LLC, March 17, 2016